Affordable housing: How to own it?

The National House Buyers Association (HBA) acknowledges the challenges faced by our Prime Minister in tabling Budget 2017 in view of the slowdown in the global and regional economies and also the weaker ringgit.

HBA’s wish list to stem excessive speculation in the property sector that had caused the unbridled escalation of property prices will continue. We have also to continue to challenge some ill-concocted ideas that may prey on laxity by some departments. It was for this purpose that HBA accepted the invitation by the Finance Ministry early this month to table a paper entitled: Affordable Housing: How the Rakyat could own it? in the focus group dialogue with all stakeholders – government and private. The Government seems to be serious about doing something. And if it is so, then it has to make several hard and unprecedented decisions.

HBA has consistently called for government intervention to prevent a “homeless generation of young adult Malaysians” from emerging, especially in urban and sub-urban areas, who, if not for wild speculation, would have been able to buy their own houses.

In the Government’s drive for home ownership, low stamp duties have been imposed to encourage first-time house buyers. But speculators have taken advantage of this to accumulate multiple properties and manipulate prices with housing developers.

There are three types of purchasers, namely:

• Necessity: Those who buy out of need (owner-occupied),

• Precautionary: Those who buy to hedge against inflation and for long-term investment, and

• Speculative: Those who buy to “flip” and make money against everyone’s interest except their own.

The less affluent, who constitute the majority of the population, have been marginalised, with those having more than others accumulating property far in excess of what they need.

Kudos to the cooling measures adopted in Budget 2014 in the form of Real Property Gains Tax (RPGT), formerly known as the Anti-Property Speculation Act; tightening of the loan to value ratio and the ban on Developers’ Interest Bearing Scheme or DIBS, we see the property prices slowing down to a certain extent.

HBA reiterates its call on the Government to take additional measures to continue to stem the steep rise in property prices. The exit cost in the form of imposition of RPGT is in place. However, the Government must now relook our proposal to increase entry cost.

Whilst Budget 2014 has increased exit cost in the form of the higher RPGT, more measures are needed to increase the entry cost to further reduce multiple purchases or the speculators.

The current stamp duty payable for the transfer of properties is based on the value of the property. This does not deter speculators, as the stamp duty payable is the same, regardless of the number of properties already held or bought.

The Government’s current low stamp duty regime has been misused by property speculators to accumulate multiple properties, driving up these prices by creating false demand and denying genuine first-time buyers the opportunity to buy such properties.

It is every Malaysian’s wish to buy at least one property in his or her lifetime for own dwelling, and perhaps an additional property as a long-term investment or to fund their children’s education.

Hence, HBA has proposed that the current stamp duty scale remains for the first two properties, but is increased to a flat rate based on the property price for the third and subsequent properties to discourage speculative buying.

With the same scaled stamp duty payable regardless of the previous number of properties held, speculators are not deterred from buying multiple properties.

Even for properties costing RM600,000, the stamp duty payable is only 2% of the value of the property.

HBA-proposed stamp duty be imposed flat at 5% for the third property; 7.5% for the fourth and 10% on the fifth and subsequent property. It would not cause any disruption to genuine house buyers who can only afford two properties in their lifetime (one for their dwelling and the other for long-term investment).

On the other hand, property speculators would be discouraged as the stamp duty greatly increases their entry cost.

It’s naivety to accept the developers’ arguments to re-introduce the DIBS gimmick. It should be noted that Bank Negara had prohibited “any form of interest capitalisation scheme”.

The economic downturn is seen as a fresh opportunity for DIBS to be reconsidered and mooted by none other than Rehda, the trade organisation that represents developers. This time around, it says it’s only for “first time house buyers”

DIBS or any other permutation similarly “schemed” cannot be allowed to continue for the betterment of the housing industry as it risks creating a property bubble as property prices have been artificially increased and they create a snowball effect. This is especially so when the young, unwary and first time house buyers come on stream. They need more protection compared with seasoned players.

DIBS prohibition announced in Budget 2014 had been effective in curbing the unbridled escalation of house prices. DIBS must continue to be prohibited and outlawed and should not be re-instated in any form or substance.

Pay nothing to own a house?

DIBS is popular with speculators as they pay nothing to make a profit. The argument that purchasers don’t have to pay for anything during construction is specious: attractive to the naive buyers.

The expenses, in any form, incurred by the developer will eventually have to be paid back, by the purchaser with a “premium”. The increased amount ranging from 10% to 20% and some even as high as 25%, will have to be paid by purchasers in exorbitant instalments.

DIBS period corresponds with steep increase in property prices

The report by Khazanah Research Institute showed that the Malaysian all-house price index grew steadily at a compounded annual growth rate (CAGR) of 3.1% from 2000 to 2009 and suddenly accelerated at a CAGR of 10.1% between 2009 and 2014.

I have comprehensively argued this issue with a progressive interest payment chart in my published article titled: “Downside of interest bearing scheme”: http://www.thestar.com.my/business/business-news/2016/04/23/downside-of-interest-bearing-scheme/

Housing Guarantee Corp (HGC) akin to guaranteeing developers’ profit

The proposed setting up of the HGC will be seen as a “licence” for developers to launch new housing projects in huge volumes regardless of viability.

Going forward, developers know that they can abandon the projects should things turn bad for whatever reason and the HGC will take over the project and “mop up” the consequences of abandonment.

It will be a clear example of “profits privatised – losses nationalised”.

The Government should not waste resources to formulate a HGS purportedly to “save” house buyers. By the way, who is paying for the insurance premium? Would it not be factored into the sales price again?

The first question the Government needs to answer is why does the abandonment of housing projects take place? The problem is not because of the lack of laws but because of the lack of or lax in enforcement. Enforcement programmes must be organised and must be implemented. To sit back and expect the housing developers to toe the line is but an elusive dream.

I have comprehensively argued this issue in my column; it has been published titled: “HGS akin to guaranteeing developers’ profit”: http://www.thestar.com.my/business/business-news/2015/02/28/hgs-akin-to-guaranteeing-developers-profit/

Transparency and accountability in PR1MA

It’s already priced too high for the majority of genuine house buyers. PR1MA is a noble idea, but is it being properly implemented? Are they building “the right product, at the right place, with the right pricing and in the right numbers?”.

Why should second time house buyers be eligible to ballot when there is not enough (built) for first timers?

How affordability can be further improved?

> Increase supply of “affordable housing” at the range of RM150,000 to RM300,000 at the right locations and in the right number.

> Affordable property must only be sold to “first time house buyers” and not owners of existing properties.

> Government agencies entrusted to build affordable properties only build “affordable properties” and not lifestyle properties that PR1MA is embarking on through its joint venture with private developers.

Even PKNS and some state economic agencies are embarking on building multi-million ringgit bungalows instead of “affordable properties” and have deviated from the very purpose they have been established.

> No re-sale with a 10 years moratorium.

I have made repeated suggestions and sought answers whether it have been implemented properly whenever I meet with PR1MA representatives but each time to no avail. Even my article published in my column titled: “Make Kampung Baru a PR1MA Malay suburb” went unheeded. You may read my article through the link: http://www.starproperty.my/index.php/articles/investment/make-kampung-baru-a-pr1ma-malay-suburb/

I will continue with the rest of the pointers in the next issue.

Chang Kim Loong is the secretary-general of the National House Buyers Association: www.hba.org.my , a non-profit, non-governmental organisation manned by volunteers. He is also the NGO councillor at the Subang Jaya Municipality Council. - The Star